ABSTRACT
Managers (insiders) of firms can increase their profit by taking actions based on insider information (information that is not available to the public). If insiders obtain positive (negative) information about a company, they buy (sell) the company’s stock with the expectation that the stock’s price will rise (fall) when the positive (negative) information is publically announced. Such insider trading of securities, where asymmetric information exists between the insider and the general public, is illegal.1 However, incorporating information not known by all agents in market pricing is generally legal-legal, but unethical. When selling a commodity, agents are not legally required to provide full disclosure of information on a commodity. An example is running the following ad:
For Sale: Parachute. Only used once, never opened, small stain.
